Who can invest
Indian, foreign and NRI investors. The minimum investment is ₹1 crore, or ₹25 lakh for employees and directors of the AIF or its manager. There is no minimum for accredited investors.
SEBI
Understand SEBI AIF Regulations, 2012
A simple, structured guide to the SEBI (Alternative Investment Funds) Regulations, with the regulation text and links to each provision.
SEBI AIF · Plain-English guide
Understand SEBI AIFs
A simple, structured guide to the SEBI (Alternative Investment Funds) Regulations, 2012
Go section by section through what an AIF is, who regulates it, the three categories, setting up, investment conditions, day-to-day obligations and reporting. Each section links to the regulation it rests on.
Save this guide as PDFIndia’s AIF ecosystem
Understand SEBI AIFs
01
Section 1
What is an AIF?
An Alternative Investment Fund (AIF) is a privately pooled fund set up in India. It collects money from investors, Indian or foreign, and invests it under a defined investment policy for their benefit. It must be registered with SEBI before it starts.
“Alternative Investment Fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which,(i) is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and (ii) is not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities
Regulation 2(1)(b)
Three words do most of the work in this definition: private, pooled and policy. The money comes from a limited group of investors through private placement, it is pooled into one fund, and it is invested under a policy disclosed upfront in the placement memorandum.
Some vehicles look like funds but are kept out of the definition: family trusts set up for relatives, ESOP trusts, employee welfare or gratuity trusts, holding companies, special purpose vehicles not set up by fund managers (such as securitisation trusts) and funds managed by RBI-registered securitisation or reconstruction companies.
In everyday terms: a mutual fund is a public bus that anyone can board for a small fare. An AIF is a private coach for a smaller group of larger investors, which is why the usual minimum ticket is ₹1 crore (Regulation 10(c)).
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NextWho regulates AIFs02
Section 2
Who regulates AIFs
AIFs are regulated by the Securities and Exchange Board of India (SEBI). The AIF Regulations, 2012 are made under the SEBI Act, 1992, and SEBI adds the working detail through circulars, most of it brought together in the Master Circular for AIFs.
On and from the commencement of these regulations, no entity or person shall act as an Alternative Investment Fund unless it has obtained a certificate of registration from the Board.
Regulation 3(1)
SEBI is involved across the whole life of an AIF. It grants registration (Regulation 6), receives every scheme’s placement memorandum through a merchant banker (Regulation 12), can call for information and reports (Regulations 26 and 28), inspects books and records (Regulation 30) and takes action for breaches (Regulation 35).
Under Regulation 36, SEBI can issue clarifications and guidelines by circular. The Master Circular for AIFs, last updated on 7 September 2026, brings these together in 25 chapters covering PPM templates, first close, valuation, reporting, performance benchmarking and more.
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NextThe three AIF categories03
Section 3
The three AIF categories
Regulation 3(4) places every AIF in one of three categories, based on what it invests in and whether it uses leverage. The category is chosen at registration and cannot be changed later without SEBI’s approval (Regulation 7(2)).
A simple way to remember it: Category I backs the sectors the government wants to grow, Category II is the broad middle (private equity, debt) that does not borrow to invest, and Category III trades actively and may use leverage.
| Category | Tenure | What it invests in |
|---|---|---|
| Category I | Close-ended, at least 3 years | Start-ups, early-stage ventures, social ventures, SMEs, infrastructure and other sectors the government or regulators consider socially or economically desirable. Includes venture capital funds (with angel funds as a sub-category), SME funds, social impact funds, infrastructure funds and special situation funds. |
| Category II | Close-ended, at least 3 years | Funds that are not Category I or III and do not borrow except for day-to-day operational needs. Typical examples are private equity funds and debt funds, investing mainly in unlisted securities or listed debt rated ‘A’ or below. |
| Category III | Open-ended or close-ended | Funds using diverse or complex trading strategies, which may use leverage, including through listed or unlisted derivatives. Typical examples are hedge funds and long-short funds. |
iConcentration limits also differ by category. Category I and II may put up to 25% of investable funds in one investee company (50% for a large value fund for accredited investors). Category III may put up to 10% (20% for a large value fund) (Regulation 15(1)(c) and (d)).
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NextSetting up an AIF04
Section 4
Setting up an AIF
To register, the applicant files Form A with SEBI along with the fee in the Second Schedule, and must meet the eligibility conditions in Regulation 4. In practice the work falls into six parts.
- Legal formRegs 2 and 4
An AIF can be a trust, a company, an LLP or a body corporate. A trust needs a trust deed registered under the Registration Act, 1908; an LLP must be incorporated with its deed filed. The constitution document must allow AIF activity and bar any invitation to the public.
- Fit and proper peopleRegulation 4
The applicant, the sponsor and the manager must all be fit and proper persons: honest, of good reputation and free of disqualifications.
- Key investment teamRegulation 4(g)
The manager’s key investment team needs at least one person with the NISM certification SEBI specifies (Series XIX-C, XIX-D or XIX-E, depending on category) and at least one person with a recognised professional qualification.
- InfrastructureRegulation 4
The manager or sponsor must have the office, systems and people needed to run the fund. The application must set out the objective, target investors, proposed corpus, strategy and tenure.
- Placement memorandumRegs 11 and 12
Each scheme’s PPM, in SEBI’s template, is filed through a merchant banker at least ten working days before launch. SEBI may send comments, which must be complied with. The first scheme pays no scheme fee (proviso to Regulation 12(1)).
- First closeReg 12(4), (5)
First close must be declared within 12 months of becoming eligible to launch (Master Circular, Chapter 12). If it is missed, the scheme has to be filed again with the fee.
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NextInvestment conditions05
Section 5
Investment conditions
Once registered, an AIF raises money and invests within a set of conditions that apply to every category, with extra rules for each one. These are the conditions you will use most often.
How many investors
A scheme can have up to 1,000 investors. Accredited investors are not counted towards this limit.
Minimum corpus
Each scheme needs a corpus of at least ₹20 crore, or ₹5 crore for a social impact fund scheme.
Concentration
Category I and II: up to 25% of investable funds in one investee company. Category III: up to 10%. Large value funds for accredited investors get 50% and 20%.
Deals with associates
Investing in associates, or buying and selling with associates or related AIFs, needs approval of 75% of investors by value.
Overseas investment
Allowed within RBI and SEBI conditions: equity and equity-linked instruments of offshore venture capital undertakings, within an industry-wide limit of USD 1,500 million (Master Circular, Chapter 5).
Borrowing
Category I and II can borrow only to meet temporary funding needs: up to 30 days, up to four times a year and up to 10% of investable funds.
Co-investment
Investors of a Category I or II AIF can co-invest alongside it only through a co-investment scheme or a Co-investment Portfolio Manager.
Tenure and extension
Category I and II are close-ended with at least three years’ tenure. Tenure can be extended by up to two years with approval of two-thirds of unit holders by value.
Some AIFs have their own chapters with extra rules: angel funds (Chapter III-A), special situation funds (Chapter III-B), the Corporate Debt Market Development Fund (Chapter III-C) and migrated venture capital funds (Chapter III-D). Each is explained on its regulation pages.
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NextKey obligations06
Section 6
Key obligations
Registration is only the start. Chapter IV sets the obligations that apply every day, and the Master Circular adds the detail on how to meet them.
Code of conduct and policiesRegulation 20
The AIF, its trustee or directors, the manager and key people follow the Code of Conduct in the Fourth Schedule. The manager and trustee jointly approve written policies on how decisions are taken. The manager may set up an investment committee (Regulation 20(7)).
Conflicts of interestRegulation 21
The sponsor and the manager act as fiduciaries for investors. They disclose every conflict of interest as soon as it arises or seems likely to arise, and keep written policies to manage conflicts.
TransparencyRegulation 22
Investors are told about fees, regulatory inquiries anywhere in the world, material liabilities and breaches of the fund documents, as and when they occur.
ValuationRegulation 23
Category I and II investments are valued by an independent valuer at least every six months (extendable to a year with 75% of investors by value). For Category III, NAV calculation must be independent of fund management.
Investor grievancesRegulation 24A
The manager resolves investor grievances promptly and within 21 calendar days of receiving them.
RecordsRegulation 27
Records of assets, valuation policies, strategies, investors and the rationale for each investment are kept for five years after the fund is wound up.
Compliance officerMaster Circular, Chapter 17
The manager designates a compliance officer who is not the CEO. From 1 January 2027, the compliance officer must hold the certification SEBI specifies.
Winding upRegulation 29
A trust AIF is wound up when its tenure ends, if the trustees decide it is in investors’ interest, if 75% of investors by value resolve so, or if SEBI directs. Since April 2026 an AIF can also be tagged as an inoperative fund (Regulation 29(10A)).
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NextReporting and disclosures07
Section 7
Reporting and disclosures
An AIF reports to SEBI on fixed dates and whenever SEBI asks, and keeps its investors informed. SEBI can also inspect it at any time.
Annual Activity ReportMaster Circular, Chapter 21
Filed on the SEBI Intermediary Portal within 30 calendar days from the end of March each year.
Quarterly Activity ReportMaster Circular, Chapter 21
A shorter report filed within 15 calendar days from the end of each quarter, starting with the quarter ending June 2026.
Information on requestRegulations 26 and 28
SEBI can call for information from the AIF, its manager, sponsor, trustee or investors, and can ask for reports in any form.
Performance benchmarkingMaster Circular, Chapter 22
Each AIF shares its data with a benchmarking agency notified by the AIF industry association, so investors can compare performance.
Disclosures to investorsRegulations 10(e) and 22
The manager or sponsor discloses its own investment in the fund, along with fees, conflicts, material liabilities and breaches.
InspectionRegulations 30 and 31
SEBI can inspect books and records, normally with at least ten days’ notice. It can inspect without notice if that is in investors’ interest.
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NextHow the rules fit together08
Section 8
How the rules fit together
- The ActSecurities and Exchange Board of India Act, 1992. It sets up SEBI, and the AIF Regulations are made under it.
- The RegulationsSEBI (Alternative Investment Funds) Regulations, 2012, as amended. The binding rules this portal explains.
- Master Circular and circularsIssued under Regulation 36. The Master Circular for AIFs (last updated 7 September 2026) brings them together in 25 chapters.
- FAQs and guidanceSEBI’s explanations. Helpful, but the Regulations prevail where they differ.
- Forms and templatesForm A for registration, the PPM templates, and the reporting formats on the SEBI Intermediary Portal.
The 2012 Regulations repealed the SEBI (Venture Capital Funds) Regulations, 1996 (Regulation 39). Existing venture capital funds could move to the AIF Regulations as migrated venture capital funds under Chapter III-D.
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NextWhat changed recently09
Section 9
What changed recently
- 2012SEBI (Alternative Investment Funds) Regulations, 2012 Principal
Published in the Gazette on 21 May 2012. They created the AIF framework and repealed the 1996 Venture Capital Funds Regulations.
- Nov 2025Third Amendment Regulations, 2025 Amendment
Notified on 19 November 2025, the last amendment before 2026.
- Apr 2026Amendment Regulations, 2026 Amendment
Notified on 16 April 2026. Individuals investing in social impact funds that invest only in not-for-profit organisations on a social stock exchange can now invest from ₹1,000 (earlier ₹2 lakh). Sale of assets on liquidation is now subject to SEBI’s conditions, and a new Regulation 29(10A) lets an AIF be tagged as an inoperative fund.
- Jun 2026Master Circular for AIFs issued Circular
Issued on 3 June 2026 and last updated on 7 September 2026. It requires a limited Quarterly Activity Report from the quarter ending June 2026, among other changes.
- Jul 2026Second Amendment Regulations, 2026 Latest
Notified on 10 July 2026. Under Regulation 12, the scheme fee and the first-scheme exemption move into 12(1), the PPM is filed at least ten working days before launch (earlier thirty days) with the documents SEBI specifies, and SEBI’s comments go to the merchant banker or the manager, who must ensure they are complied with. Accredited-investors-only funds stay outside this filing process. Angel fund PPMs under Regulation 19D(4) no longer go through a merchant banker.
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NextWhere to go next10
Section 10
Where to go next
This is a learning and compliance-preparation tool. Plain-English readings, practical notes, 'what changed' summaries, the timeline and calculators are the portal's interpretation and do not replace professional advice or the notified Gazette text of the IFSCA (Fund Management) Regulations, 2025 and its amendments.
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Global Horizons Capital Advisors (IFSC) Private Limited — an IFSCA-licensed investment banker
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